Soaring demand for critical minerals could prove transformative for commodity-exporting nations, but action is needed to plug a US$225bn mining investment gap, improve access to finance and overcome sustainability concerns, international bodies warn. 

The transition to renewable energy is causing “surging” demand for certain metals. Lithium demand is projected to increase by more than 1,500% by 2050, with similar increases for nickel, cobalt and copper, according to a report published last week by UN Trade and Development (UNCTAD). 

Global revenues from extraction of four crucial metals – copper, nickel, cobalt and lithium – will total an estimated US$16tn over that time, the International Monetary Fund (IMF) estimates in a separate report published on April 29.  

Mineral-rich nations in Sub-Saharan Africa are expected to generate around a tenth of those revenues, increasing GDP by as much as 12%, the IMF says. UNCTAD adds the continent has more than a fifth of the world’s reserves for a dozen metals “essential” to the energy transition. 

However, the UN agency says there is currently a US$225bn shortfall in investment in critical mineral mining projects. 

“Global investments in critical energy transition minerals are not keeping pace with escalating demand,” it says. “Current production levels are inadequate to meet the needs required to limit global warming to 1.5°C, in line with the Paris Agreement.” 

It says it has identified 110 new mining projects in place worldwide, but says the renewable energy industry is likely to need 80 new mines for copper alone, and that lithium, nickel and cobalt will require a further 170 new mines. Nickel accounts for more than a third of the gap between needed and existing investment. 

The World Economic Forum says in another report, published this week, that a supply deficit could emerge as soon as 2028. 

“Given the long lead times to develop new supply sources, investments in mining these minerals must begin now,” it says. “Yet, in the face of low prices, the mining industry is delaying projects, scaling back work and suspending operations.” 

Rohitesh Dhawan, chief executive of the International Council on Mining and Metals (ICMM), said at the Financial Times Global Commodities Summit last month that the industry spent around US$14bn on exploration last year. 

“That’s the highest it’s been in a decade, but it’s still lower than what it was 10 years ago, at US$20bn,” he said.  

“So 10 years on, we’re spending less than we were then, even though we’re talking about critical minerals. Now it gets worse: of that US$14bn, half was on gold.” 


Financial challenges 

There are several hurdles standing in the way of a scale-up of mining investment. International lenders face regulatory constraints and concerns over perceived risks in developing markets, while commodity traders have tended to focus on shorter-term transactions. 

The IMF report calls for policy reforms that “develop a supportive business environment by strengthening domestic financial markets and improving access to finance”. 

“New fintech innovations offer exciting potential to help firms that serve the mining sector but face difficulties in securing traditional financing,” it says. 

McKinsey suggested in a report last year that large commodity traders could use their strong market position to boost liquidity and price discovery in the critical minerals market, as well as providing pre-financing for new mines and helping producers access international markets. 

There are signs the energy transition is prompting some commodity traders to move outside their traditional areas of expertise, according to McKinsey partner Roland Rechsteiner, also speaking at the Financial Times event. 

“The energy transition changes quite a lot of things,” he said. “The transformation, or integration, of food, energy and materials – that’s where oil players are looking into agriculture, power players are looking into metals. They all gain more convergence.” 

However, there are wider complications. The WEF report says the derivatives market for critical minerals – an important means of increasing liquidity and hedging exposure to price volatility – remains “tiny” compared to traditional metals markets. 

In the futures market, it says: “Currently, daily traded volumes of lithium and cobalt account for less than 1% of their respective annual production; in contrast, nickel, zinc and copper have trade volumes ranging from 10-30%.” 

Challenges to expanding the critical minerals derivatives market include limited market pricing information, driven by high market concentration among producers of certain metals, and complexities around product purity and shelf life, the WEF says. 

Sustainability pressures present another hurdle, ICMM’s Dhawan pointed out. 

“We’re in the strange position today where ESG is both increasing demand for commodities and constraining supply at the same time,” he said. 

“It’s increasing demand because we’re all rightly concerned about decarbonisation. That means a huge increase in demand for all metals and minerals… but also concerns around water [and] other social issues are constraining supply. 

“So at the very time when we need new mines to supply the demand, it’s probably the hardest it’s ever been to open a new mine today.”